Paddy Power Betfair acquires majority of FanDuel as US betting rules relax

Business - 24 May 2018

Author: Callum Murray

Paddy Power Betfair, the Ireland-based betting company, has,
as expected, announced that it is to combine Betfair US, its US business, with
FanDuel, the US daily fantasy sports platform.

In a statement, Paddy Power Betfair said: “The transaction
strengthens the Group’s opportunity to target the prospective US sports betting
market through the addition of a strong brand, large existing customer base and
talented team. The scale of the combined business also means it is well
positioned in discussions with providers of market access for sports betting.”

FanDuel has a market share of over 40 per cent of the US
daily fantasy sports market, with 7 million registered customers across 40
states and revenue of $124 million and 1.3 million active customers in 2017,
according to Paddy Power Betfair.

This compares with Betfair US’ revenues of $141 million and
reported pre-tax losses of $18 million in the year to 31 December, 2017.

Under the agreement, Paddy Power Betfair will contribute its
existing US assets, along with $158 million of cash. This cash contribution
will be used to pay down existing FanDuel debt (net debt of $76 million at 31
March, 2018) and fund working capital of the combined business.

When the transaction is completed, the group will own 61 per
cent of the combined business, with existing FanDuel investors owning 39 per
cent. Paddy Power Betfair will also have operational control of the business.

Peter Jackson, chief executive of Paddy Power Betfair, said:
“We are excited to add FanDuel to the Group’s portfolio of leading sports
brands. This combination creates the industry’s largest online business in the
US, with a large sports-focused customer base and an extensive nationwide
footprint.

“The Group has leading sports betting operating capabilities
globally and strong operations on the ground in the US. Together with our
substantial financial firepower, we believe we are now well placed to target
the prospective US sports betting opportunity.”

The move comes just days after the US Supreme Court
effectively gave states the right to legalise sports betting after it ruled
that the Professional And Amateur Sports Protection Act of 1992, which
prohibits the majority of sports betting outside of the state of Nevada, was
not consistent with the US constitution.

FanDuel was regarded as a lucrative target for bookmakers
looking to enter the US market as it is already an established gaming brand.

The platform also has a huge database as most of its users
play for free. Around 10 million people in USA are said to be registered with a
daily fantasy sports site such as FanDuel or rival DraftKings.

DraftKings, which at one time had planned to merge with
FanDuel, plans to launch its own sports betting product later this year
following the easing of betting regulations.

The Supreme Court's ruling allows states to permit sports
betting operations at racetracks or casinos. It is expected that online sports
betting will be available if a platform partners with a land-based
licence-holder.

Around 19 of the country’s 50 states have recently passed or
introduced legislation in anticipation of the decision.

However, states in the ‘bible belt’, namely those with a
strong Christian heritage, like Utah, are not expected to implement sports
betting.

The question of taxation and the role of major sports
leagues remains to be decided.